Downgrade pressure on Biocon

Analysts expect ramp-up in biosimilars to be gradual

A weaker-than-expected performance of the biosimilars segment and muted growth in the generics segment dented the March quarter showing of Biocon. Biosimilars revenues were down 14 per cent on a sequential basis because of price erosion and higher inventories in the channel in the previous quarter. The segment is the largest among its business units and accounts for 36 per cent of its overall revenues.

Brokerages say the sequential decline was due to the flattish market share trajectory of oncology biosimilars (Pegfilgrastim, Trastuzumab) in the American market, with volumes continuing to trend below the pre-covid levels and price decline in double digits. Further, the market share ramp-up in Insulin Glargine (for diabetes) has been muted; the company has about 2 per cent share in the US Insulin Glargine market.

Analysts at Nirmal Bang Research say: “We see the US biosimilars space witnessing similar competitive intensity as small molecule generics, leading to opportunity size for biosimilars launches maturing in a year or two. In addition, unlike small-molecule generics, local Us-based players are dominating the market.”

The company, however, expects biosimilars growth in FY22 to be higher than the 21 per cent achieved in FY21, on market share gains in Pegfilgrastim, Trastuzumab, Insulin Glargine in the American market. The company has received approval from the EU for Bevacizumab (cancer/eye disease) and Insulin Aspart, and is expected to market them soon. Plans to introduce them in the US market depends on plant inspection by US FDA through a virtual audit. The company is hopeful of a launch in FY22.

Growth in the generics segment, too, was muted -- 3 per cent both on sequential and year-ago bases given pricing pressure, as well as lack of fresh launches. Analysts expect the segment to grow in mid-to-high single digits in FY22, led by double-digit growth in formulation sales (3-5 launches in the US market) and expansion in emerging markets. The active pharma ingredient segment within generics — which accounts for 80 per cent of the sales — is expected to record flat to lower single-digit growth due to capacity constraints.

The research services unit (Syngene) reported steady revenue growth at 9 per cent, led by discovery services/dedicated centre services. Analysts expect growth in this segment to be around 19 per cent over FY21-23.

Given the slow ramp-up of biosimilars products, most brokerages have cut their FY22/FY23 earnings estimates by 10-15 per cent. Analysts at IIFL Research expect the earnings downgrade cycle to continue over the next two-three quarters until business visibility in this segment improves.